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The number of people struggling to pay household bills and relying on expensive credit facilities like payday loans is rising, say debt charities StepChange and Citizens Advice. Of the 326,897 people who went to StepChange for help in the first half of this year, one third were behind on their council tax payments. More than 13% of people who approached the charity were behind on their gas and electricity payments.

Just over 18% of people contacting StepChange were using high-interest payday loans to cover their costs - up from 16.8% at the same time a year ago. The average payday loan debt was £1,700 per person (Source: MY JAR)

Citizens Advice says that household debt, which includes council tax, utilities and benefit overpayments, is eclipsing consumer debt at £19 billion. Almost twice as many people sought help for household debt over consumer credit, and every three minutes someone calls them for help with debt collectors.

Gillian Guy, Chief Executive of Citizens Advice, notes that small missed bills “can skyrocket through excessive enforcement fees”. The debt has serious knock-on effects for mental health and in many cases leads to additional borrowing.  

Taking out loans in order to pay bills only compounds the problem, with some lenders charging extortionate rates of interest. 

The National Audit Office estimates that people across the UK owe at least £18 billion to utility providers, landlords, housing associations and government, such as through council tax arrears or benefit overpayments.

Experts point to Universal Credit as a major factor for household debt, with Parliament’s Public Accounts Committee finding that the introduction of Universal Credit had caused “unacceptable hardship and difficulties” for its claimants. The new scheme replaces six other benefits and tax credits, including housing benefit and jobseeker’s allowance. Intended to encourage employment rates, some households have seen a cut of over £2,000 a year - and it is often people in low-paid work who are hit the hardest.

In its October report the Committee found that debt, rent arrears and food bank usage were up significantly since last year. Newcastle City Council alone had seen housing arrears double to £2 million by March 2018.

Some 20% of people on Universal Credit do not receive their full payments on time, and over 40% are still facing financial difficulties eight or nine months later.

Furthermore, English council tax saw its steepest hike for 14 years earlier this year, with many households forced to pay an extra 5% to cover local services. This adds up to roughly £2 billion nationwide. Many councils are aggressive in pursuing unpaid bills.

Richard Watts, chairman of the Local Government Association resources board, spoke out in defence of local authorities.

“No council wants to have to debt collect from its residents, particularly from people on low incomes,” he said. “But local authorities have a duty to their residents to collect taxes which fund essential services, such as protecting vulnerable children, caring for the elderly, collecting bins, and keeping roads maintained.”

The government has made moves to take household debt more seriously, with Chancellor of the Exchequer Philip Hammond recently unveiling a plan for interest-free loans in the 2018 Budget. It is hoped that the scheme will help credit users to move away from high-interest loans and loan sharks.

Rise in payday loans taken out for basic living costs
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